Through the Recovery Plan for Europe (RRF 2021-2023), namely Next Generation EU instrument, Croatia is allocated around EUR 9.4 billion over the next four years. These are primarily focused on financing the implementation of key structural reforms in areas where the consequences of the crisis and the need to strengthen resilience are the greatest. In addition to the funds available through this Recovery Plan, Croatia will also have at its disposal funds from the multiannual financial framework (ESIF 2021-2027, around EUR 9 billion). Preparation of operational programmes has officially begun, and the first working groups are expected to be established soon. One of the working groups is Green Croatia, which will deal with topics and strategic objectives related to the energy transition.

To prepare and implement projects based on combined financing, it is necessary to allocate a share of funds from the Operational Program 2021-2027 for technical assistance.

It is necessary to establish grant schemes for projects according to the model of energy performance contracting (EPC) in buildings as well as financial instruments using ESIF and Recovery and Resilience Facility. Such financial instruments would also include a grant component for projects developed under the energy performance contracting (EPC) model and public-private partnership (PPP) model in buildings. In particular, it is necessary to co-finance a private partner fee (ESCO or private partner in the PPP model).

Croatia has adopted strategic documents that provide the basis for the use of these funds: National Development Strategy until 2030, Energy Development Strategy, Integrated National Energy and Climate Plan (NECP) and Long-term strategy to encourage investments in the reconstruction of the national building fund. These documents set the direction for investment in a green and digital transition, emphasizing the need to combine public and private capital and stronger involvement of the private sector. Combined financing (combining private capital and ESIF/RRF/national funds) is key to achieving large leverage (multiplier effect) and is the only way to achieve the overall goals of energy renovation of the building stock by 2030 and 2050.

The building sector in Croatia has a very large potential, but also the need for investment in sustainable energy and energy efficiency. The Long-Term Strategy for the Renovation of the National Fund of Buildings until 2050 is the umbrella document for implementing energy efficiency measures in buildings. The strategy plans to increase the renovation rate from the current 0,7% to 3% by 2030. The renovation will also encourage highly efficient renewable energy systems (RES), activities to ensure a healthy indoor climate, protection against seismic activity, but also the modernization of district heating systems using RES, as well as focusing on a comprehensive renovation of building blocks.

Good practice examples of combining private and public financing, i.e the possibility of using financial instruments and grant components (from ESIF 2021-2027) in the implementation of the ESCO financing model, exist in a number of EU countries. Slovenia has successfully implemented combined financing projects. It was also pointed out that the Slovenian model of the EPC contract is developed under PPP procedures and the legislative framework, the so-called Maastricht neutral treatment, and that Slovenia consulted EUROSTAT during the preparation of the EPC documentation on the issue of contract stipulations and risk sharing.

It is necessary to launch a technical assistance program through the European Investment Advisory Hub (EIAH), which would support the development of a program framework. This framework would include the preparation of standardized EPC and PPP documentation and risk allocation to achieve the so-called Maastricht neutral treatment of these contracts (EUROSTAT), as well as the development of the financial mechanism that would support the financing of projects for the complete renovation of the building stock. It is necessary to use a national model of the EPC contract, in accordance with the legislative framework (Law on Energy Efficiency, Regulation on Contracting and Implementation of Energy Services in the Public Sector), to achieve the Maastricht neutral treatment. When preparing EPC documentation, it is necessary to take into account the differences and separate between EPC and PPP, in accordance with the interpretation of EUROSTAT. While the model of energy renovation of buildings using EPC should be used in case of sufficient energy savings, the PPP model should be applied to investments that include other requirements/needs of building owners such as upgrades or adaptations to new working conditions.

The challenges Member States, including Croatia, are facing are the harmonisation of all available sources of financing, strategic documents and increasing the level of readiness of projects for financing. Involving experts from the research and business sector, as well as raising awareness of the opportunities provided by EU programmes should be a priority when planning and implementing projects in the coming period. Croatia has a good starting position to use the EPC model more intensively. However, it is crucial to identify all necessary measures for buildings as well as to combine sources of EU funds to enable the financing of deep renovation of buildings in future programmes. The details of the State Aid treatment of grants awarded to ESCOs under the EPC contract are considered the biggest obstacle in combined financing.

The very successful results of the implementation of the Program for the energy renovation of public sector buildings for the period from 2014 to 2018 in which the building renovation projects were realized through the ESCO model were highlighted. The implementation of the Program was the responsibility of the Croatian Agency for Transactions and Mediation in Immovable Properties (APN). The Environment Protection and Energy Efficiency Fund (EPEEF) co-financed 40% of the works, and 100% of energy audits and certificates and, where necessary, preparation of project tasks. This grant component was necessary to make EPC projects financially viable but also acceptable to ESCOs and clients (public authorities). However, due to the limited financial capacity of the EPEEF, the implementation of the Programme was suspended during 2018. In the panel discussion, the representatives of the EIB and DG REGIO pointed out several possible ways to use the ESIF and stressed the possible support of the EIB to work together in the future to develop a national program or model for the implementation of EPC projects by combining funds. In addition to the above, there is a possibility to use funds from the Recovery and Resilience Facility, where the promotion of energy efficiency in buildings is flagged as one of the key reforms that can be financed.

Click here to download the file!